By Reshma Kapadia

At the 2012 China Internet conference, the Ministry of Industry and Information Technology Vice Minister criticized companies’ “vicious competition,” Citi anayst Ravi Sarathy notes. He thinks the comments were directed at the e-commerce price war and the battle between Qiho 360 Technology(QIHU) and Baidu (BIDU)

“In a previous incident between Qihoo and others including Tencent, the MIIT notably ordered the companies to stop their escalating tensions and, apologize to affected users and make their products compatible with each other,” Sarathy writes.

“Strategic clarity” is emerging on the key steps Qihoo will take going forward to take market share over coming months, he adds, reiterating his conviction buy on Qihoo and noting that he was becoming “incrementally concerned around negative catalysts focused on share loss, mobile and high profile staff losses” for Baidu.

Add a Comment

We welcome thoughtful comments from readers. Please comply with our guidelines. Our blogs do not require the use of your real name.

Comment

There are 7 comments

SEPTEMBER 13, 2012 9:33 A.M.

you are wrong wrote:

u do not understand china

SEPTEMBER 13, 2012 9:46 A.M.

squeeeze wrote:

cover your shorts on BIDU while you can before the harsh dose of reality hits you bad.

SEPTEMBER 13, 2012 10:49 A.M.

Curious 1 wrote:

Reshma, I would like to know why Ravi seems to be the only analyst with these concerns? Also, in the interest of "Full Disclosure" do you have some special connection to Ravi at Citi since you have written articles two days in a row, both with very little substance and a lot of innuendo. If Ravi makes the statement there is a price war why not be more specific. I have read nothing about a price war between Baidu and Qihu. Until just last month there was very little overlap in their business so Ravi is saying now they are in a price war, or is he referring to other companies in attendance at the tech conference and you inadvertently give the impression to investors that it is between Baidu and Qihu? If it is between Baidu and Qihu please give some specifics. That is all we ask as informed investors and that is the least we deserve.

SEPTEMBER 13, 2012 10:57 A.M.

The stock game wrote:

Qihu is a small nobody and barely started to try to compete with baidu where google and sohu has failed. Why is everyone trying to build up qihu except to run up the price of the stock then when they have made the money, they will drop the stock like a ton of bricks and jump into baidu. Its a game to get rich off the suckers.

SEPTEMBER 13, 2012 11:03 A.M.

Reshma Kapadia wrote:

Hi Curious 1
I have no connection with Citi/the analyst. I've noticed a lot of interest in these companies from readers and have tried to offer up analysts' take on these names when I come by them. For more specifics, I believe he is talking about price war in the e-commerce arena.
A bit more from Sarathy's note: “The Ministry of Industry and Information Technology (MIIT) Vice Minister, at the 2012 China Internet Conference, yesterday criticized Internet companies “vicious competition”. Without naming specific companies we believe the context was clearly the controversial eComm price war and the 360/Baidu search friction. The Vice Minister’s thrust was to give direction to enterprises to comply with industry rules and respect business ethics."

He also writes: "Qihoo search is now the industry #2 after Baidu with a steady c.10% search query share (steady since Aug 31), from nil on Aug 15. From the data, we conclude that 1) Qihoo’s user coverage had been a steady 16-17%, thanks to its browser and directory share (so there was not a meaningful switch to the Baidu start page post Baidu’s blocking of Qihoo; 2) Qihoo’s 10% search query market is stable, despite Baidu’s blockage; 3) Qihoo gained market share at the expenses of Baidu (7%) and Google China (3%). Sogou’s share was unaffected with a stable 4.3% during the period. These data are consistent with our channel checks."
Hope that helps.

SEPTEMBER 13, 2012 11:16 A.M.

sagg1948 wrote:

I think this analyst is shorting Bidu and he is full of it, he is also trying to manipulate the price of Qihu. Badiu will eat this companies lunch what kind of innovative product does it have to worry Bidu this guy is full of it.

SEPTEMBER 13, 2012 11:50 A.M.

curious 1 wrote:

Thank you for your response. I hope you seek out other analysts and provide some coverage of Baidu's implementation of their new mobile browser and what impact that is having on Qihu since mobile is the way of the near future. I can only refer you to an article published on Seeking Alpha by Jiang Zhang. Here are some points he made. Since Qihoo (QIHU) launched its own search engine in mid-August, the company's search and traffic shares have shown mixed patterns, namely:

Overall search share declined during the last month of August while Baidu's (BIDU) search share recovered slightly
Search share in the professional and academic websites declined but continued to be resilient in the entertainment and life style sites
Traffic share declined slightly, possibly due to diminishing adoption among users and users setting Baidu as their default search engine on the Qihoo browser. Zhang finishes with the following:

Baidu's superior search technology and broad product offerings in travel (Qunar), online video (iQiyi), and maps give the company a distinctive advantage over Qihoo in that users receive more comprehensive search results.

Contrary to Qihoo management's belief that search technology is not differentiated, I believe that superior search technology that delivers comprehensive results to the users is the key differentiator and the tiebreaker among search engines. Hence Microsoft Bing (MSFT) and Yahoo (YHOO) never posed a serious challenge to Google (GOOG).

While the near-term search and traffic share between Qihoo and Baidu will have near-term volatility, I believe that it is unlikely that Chinese users will migrate to Qihoo on the long-term.

About Emerging Markets Daily

Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. The Barrons.com Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools.